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Daily Traders Edge

Weekly Market Pulse: Buy The Dip, If You Can

July 27
10:38 2021

If you were waiting for a correction in stock prices to put some money to work, you got your chance last week. The Dow Jones Industrial Average was down nearly 1000 points at the low Monday and closed down 725, a loss of a little over 2%. The S&P 500 did a little better but closed down 1.5%. It looked like the beginning of a beautiful correction, one for which we were way overdue. The reason everyone gave for the selloff was fear of the Delta variant, of which new cases and hospitalizations have been rising rapidly, especially in places where vaccine take-up has been weak. If that was indeed the case, the surge was apparently vanquished by Tuesday morning or at least fear of it. Stocks took off Tuesday on the news that building permits fell 5.1% in June and never looked back. The market surged more Wednesday as mortgage applications were reported to have fallen by 4% the previous week. The surge continued on Thursday as the Chicago Fed National Activity Index fell to 0.09 and jobless claims surged to 419,000. The market ended the week on a high note as the Markit Services Flash index printed 5 points below the consensus expectation.

So, you got your chance to buy the dip but it lasted a little over one trading session. Basically, you had to be buying the low Monday afternoon to get much if any benefit from the drawdown. The reason that is true has nothing at all to do with the economic stats I randomly chose for the above paragraph. It also had nothing to do with the Delta variant (I’m still not sure whether to capitalize that). The cause of the short dip could have been anything. There is no way to determine what exactly millions of traders were thinking at the time they were pushing the sell button on Monday. Mostly because it is rarely one thing that convinces someone they are taking maybe a bit more risk than they ought. It is an accumulation of information from disparate sources, some of them not even market or economic-related. Or it’s just plain fear of loss, selling because others are selling. The cause of the rally is a bit easier to determine though. To use a cliche, there were more buyers than sellers. By a lot. Well, to be more exact, the buyers felt more urgency to buy than the sellers did to sell. By a lot. It seems that now, in 2021, investors have finally forgotten what 2008 felt like. Or they’re young enough that the only thing they remember clearly from that year is Ironman. Or Spongebob. Now that every dip of the last decade or more has been bought, now that everyone has learned that you can’t wait to buy, it’s everybody in, the water’s fine.

Investors have been throwing money at the markets for the last year, stocks and bonds and houses, oh my. Most of it is going into ETFs rather than mutual funds and a good chunk is going into the wild west of cryptocurrencies. If you put any money into crypto and you don’t get ripped off you aren’t doing it right. But in it is going. There is a huge stash of cash out there and if you can’t buy a car and you can’t get a reservation at any hotel anywhere anyone would want to go and the waiting list for a freaking couch is 9 months, what are you going to do? Let your cash sit in the bank at 0.1%? I think not. Or at least a lot of other people think not. Besides you know you don’t want to go to another Thanksgiving dinner and listen to that idiot cousin of yours who’s making bank in DeFi. No, it’s time to get in and stake your claim. How do these option things work again?

Continue Reading at Alhambra Investments

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